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Morgan Stanley Comments On Leonard Green's Stake In Bed Bath & Beyond, Asks If The Market Overreacted

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In a report published Monday, Morgan Stanley analyst Simeon Gutman commented on Leonard Green & Partners disclosure on Friday that it owns 0.6 percent of Bed Bath & Beyond Inc. (NASDAQ: BBBY)

Shares of Bed Bath & Beyond rose more than 5 percent following the disclosure. According to Gutman, the market reacted to the filing as if Leonard Green just recently amassed the stake when in reality Leonard Green's position had been gradually built over the past year, with purchases dating back to the first quarter of 2014. The analyst also noted that the timing of Friday's filings was due to an expiration of confidential treatment requests made by the private equity firm.

Gutman said the size of the position does not signal any activist activity given the "relatively small" position worth $75 million and represents less than one percent of all outstanding shares. As such, the position is just too small for any single stakeholder to affect change.

Gutman also added that Leonard Green has a strong track record and reputation within the retailing sector, but he is unsure if a less than 1 percent stake would even be necessary to begin discussions with a company. With that said, the analyst "would be surprised" if the company would not engage in general discussions with a firm of Leonard Green's stature.

Finally, Gutman pointed out that the investment firm was not obligated to file a 0.6 percent stake via a 13F due to the small size of the position. The analyst answered that simply enough, Leonard Green holds passive stakes in other companies and it chooses to make them known.

Bottom line, Leonard Green's position in Bed Bath & Beyond could signal that there is perceived value in the stock, but the analyst disagrees.

Shares were maintained with an Underweight rating (with an unchanged $74 price target) as the company progresses through an omni-channel transformation.

Latest Ratings for BBBY

DateFirmActionFromTo
Oct 2019UpgradesSector WeightOverweight
Oct 2019UpgradesMarket PerformOutperform
Oct 2019MaintainsNeutral

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Posted-In: Activist Investing Bed Bath & Beyond Leonard Green & Partners Morgan Stanley private equity retailersAnalyst Color Analyst Ratings

 

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